ViLiQ

The two legs: real yields and the dollar

Gold · lesson 2

22 minute read50 VILIQ Points

By the end
Apply the real yield and dollar framework to explain a gold move, and recognise when the two legs conflict.

  • Gold +14
  • Macro +8

Gold has two dominant inputs and a set of secondary ones. The dominant inputs are the real yield — the opportunity cost of holding an asset that pays nothing — and the US dollar, the currency it is priced in. Most gold moves worth explaining can be traced to one or both.

The framing

gold pressure ≈ −(real yield change) − (dollar change) + (official demand) + (flows)

Not a precise model, but the right structure. Rising real yields and a rising dollar are both headwinds; falling real yields and a falling dollar are both tailwinds. Central bank demand and ETF flows adjust from there.

VILIQ encodes exactly this in the gold node of the flow graph: gold ETF flows at 40% weight, real 10Y yield at 35%, and the dollar index at 25%. The weights are published so they can be argued with, and the node is rescaled by the inputs actually observed rather than treating a missing series as zero.

Example — Working through a move

Gold rises 2.5% over a week. The 10Y real yield fell 18 basis points and the dollar index fell 0.9%. Both legs are supportive, which is a coherent explanation. If instead the dollar had risen 1.5% over the same week, the explanation would be incomplete and you would look at flows and official demand before concluding anything.

Glossary

Basis point
One hundredth of a percentage point. An 18 basis point fall is 0.18%.
Opportunity cost
The return given up by choosing one asset over another.
Positioning
How participants are already exposed. Crowded positioning amplifies moves against it.

Check your understanding

0 of 3 answered

Pass mark 70%: at least 3 of 3 correct.

  1. 1.Real yields fall and the dollar weakens. What does the framework imply for gold?
  2. 2.Real yields fall while the dollar strengthens sharply. What is the correct analytical response?
  3. 3.Why does VILIQ publish the weights inside its gold flow node?

Challenge — Attribute a gold move

Over a month, gold falls 4.1%. The 10Y real yield rose 32 basis points and the dollar index rose 1.8%. Write the attribution you would give, state how confident you are, and name one piece of evidence that would make you revise it.

What a good answer contains

  • Attributes the move to both legs with the correct direction
  • States confidence honestly rather than asserting certainty
  • Names specific evidence that would change the conclusion

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Put it to work

Read a market with what you just learned, then practise with simulated money. No real order is ever placed.

VILIQ provides market intelligence, research and educational information. It is not financial product advice and does not take your personal circumstances into account. Consider your own situation and seek licensed advice before making financial decisions.

VILIQ provides market intelligence, research and educational information. It is not financial product advice and does not take your personal circumstances into account. Consider your own situation and seek licensed advice before making financial decisions.

VILIQ is operated by LTM Trading Pty Limited (ACN 659 211 426), Australia.